Chapter 12

Planning Merchandise
Assortments

McGraw-Hill/Irwin
PPT 12-1
Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

The Category

A category is an assortment of items that the

customer sees as reasonable substitutes for
each other: girls’ apparel, laundry detergents,
soup, DVD players.
In merchandise management, we do everything
at the category level.
The category can mean different things to
different retailers.

PPT 12-2

Category Management

Category management is the process of

managing a retail business with the objective of
maximizing the sales and profits of a category.

• Objective is to maximize the sales and profits of the

entire category, not just a particular brand.

Breakfast cereal category vs. Kellogg Corn Flake

Men’s knitted shirts vs. Polo shirts

• One person managing the entire category and

responsible for its success or failure.
PPT 12-3
 Category Captain

Selected vendor responsible for managing

assortment of merchandise in a category
• Vendors frequently have more information and
analytical skills about the category in which
they compete than retailers
• Problems
– Vendor category captain may have different goals
than retailer

PPT 12-4

GMROI
Inventory Productivity Measures

Combine Gross Margin % and Inventory Turnover (sort of)

Gross Margin% Inventory Turn
GMROI = Gross Margin x Net Sales
Net Sales Avg Inventory @ cost
GMROI = Gross Margin
Avg Inventory (@ cost)
Output (Margin Generated by Sales)
Input (Inventory Investment in Inventory)

PPT 12-5

ROI and GMROI

Asset Productivity Measures
Strategic Corporate Level
Return on Assets = Net Profit
Total Assets
Merchandise Management Level
GMROI = Gross Margin
Avg Inventory @ cost

PPT 12-6
 Calculating Inventory Turnover

Inventory turnover = Net Sales

Average inventory at retail

Inventory turnover = Cost of goods sold

Average inventory at cost

Average inventory = Month1 + Month2 + Month 3 +…

Number of months

PPT 12-7

Inventory Turnover and

Sales-to-Stock Ratio

Inventory turnover = Net Sales

Average inventory at retail

Inventory turnover = Cost of goods sold

Average inventory at cost

Stock-to-Sales Ratio = Net Sales

Average cost of inventory

PPT 12-8

Developing a Sales Forecast

• Understanding the nature of the product life

cycle
• Collecting data on sales of product and
comparable products
• Using statistical techniques to project sales
• Work with vendors to coordinate manufacturing
and merchandise delivery with forecasted
demand (CPFR)

PPT 12-9
 Data Sources for
Developing Sales Forecasts

• Previous Sales History

• Published Sources - Buying Power Index
(BPI), Monthly Retail Trade Report, InfoScan,
Claritas, general retail trade publications like
Stores, WWD and Chain Store Age
• Customer Information
• Vendors and Resident Buying Offices

PPT 12-10

Factors Affecting Sales Projections

Controllable Uncontrollable

• Promotions • Seasonality

• Store Locations • Weather

• Merchandise Placement • Competitive Activity

• Cannabalization • Product Availability

• Economic Conditions

PPT 12-11

Collaboration, Planning, Forecasting, and

Replenishment Systems (CPFR)

Systems used by retailers and vendors to work

together to insure that the right merchandise is
at the right place at the right time.
– Benefits both retailers and vendors
– Increases fill rate, reduces stockouts, increases
inventory turns

www.cpfr.org

PPT 12-12
 Assortment Planning

Variety is the number of different

merchandising categories within a store or
department
Assortment is the number of SKUs within a
category.
Product availability defines the percentage of
demand for a particular SKU that is satisfied.

PPT 12-13

Determining Variety
and Assortment

• Profitability of Merchandise Mix

• Corporate Philosophy Toward Assortment
• Physical Characteristics of Store
• Complementary Merchandise

PPT 12-14

Cycle and Backup Stock

150 -
Order 96
Cycle
Units Available

Stock
100 -

Buffer
Stock
50 -

0-
1 2 3 4
Weeks

PPT 12-15